To stably manage national financial expenditures, which soared during the 1997 foreign exchange crisis, the government set a goal of eliminating fiscal deficits and achieving balanced finance by 2003, which it achieved early in 2000. Since then, Korea has been operating stabler finances than any other country and has maintained its national credit rating higher than that of Japan. 

However, Korea has recently experienced deteriorating fiscal soundness, such as a rapid increase in government debt, accompanied by the government's policy of expanding its fiscal role, economic recession caused by COVID-19, the progress of a low birth rate, aging population, etc. Nevertheless, since a fiscal rule corresponding to the basic principles and standards for fiscal balance and government debt is not enacted in Korea, there is an increasing possibility that there will be a situation where it is not possible to secure continuous financial soundness. 

Therefore, this enactment aims to promote fiscal stability policy covering national and local governments, public institutions, and social insurances and establish a legal and institutional foundation for securing the mid- to long-term financial sustainability.

Details

A. Fiscal stability obligations (Article 4) 

To secure the mid- to long-term financial sustainability, require the heads of central government offices, local governments, and public institutions to develop relevant policies for fiscal stability.

B. Establishment and operation of the Fiscal Strategy Council (Article 5) 

1) Establish the Fiscal Strategy Council under the President to deliberate on major matters regarding fiscal stability, such as the compliance and implementation of obligations related to government debt, fiscal balance subject to management, and tax reductions; the management of financial stability plans for each fiscal subject entity; and the estimates of mid- to long-term financial forecasts and revised forecasts.

2) The Chairman of the Fiscal Strategy Council shall be the Minister of Strategy and Finance, and the members shall be the Minister of Strategy and Finance, the Director of the National Assembly Budget Office, vice minister in charge of finance among the Vice Ministers of Strategy and Finance, the President of the Korea Development Institute, the President of the Korea Institute of Public Finance, two persons recommended by the Speaker of the National Assembly and one person recommended by the Minister of the Interior and Safety and the Minister of Education, with knowledge and experience in financial management, respectively.

C. Management obligations for government debt and fiscal balance (Articles 6 and 7) 

1) Require the government to use all of the surpluses in accordance with the National Finance Act to repay the principal and interest of the government debt if the ratio of the total amount of government debt to the gross domestic product exceeds 45/100 at the end of each fiscal year.

2) For the management of financial balance, require the government to maintain the deficit in the fiscal balance subject to management at 2/100 or less of the gross domestic product when planning the budget for the next fiscal year, unless there is a war or a major disaster, or a significant change in internal and external financial conditions.

D. Obligations to prepare estimated data and financing measures for legislative bills involving financial burdens (Article 9) 

1) If a legislative bill that involves budgetary or funding measures or introduces new special taxation is initiated or proposed by a member of the National Assembly or a committee under the National Assembly Act or is submitted by the government to the National Assembly, require estimated data on the increase and/or decrease in fiscal revenues and expenditures for the period from the fiscal year in which the effective date of the relevant bill falls to the fifth fiscal year, and specific financing measures related thereto being prepared and attached to the bill.

2) If a legislative bill initiated by the head of each central government office entails financial expenditure, require him/her to prepare the estimates and financing measures for the increase and/or decrease in fiscal revenues/expenditures and consult with the Minister of Strategy and Finance before the proposed legislation is pre-announced.

E. Establishment, etc., of financial stability plans (Articles 10 and 12) 

1) Require the head of each central government office to establish financial stability plans for the period from the fiscal year to the fifth fiscal year or more and submit them to the Minister of Strategy and Finance by January 31 of each year, and the Minister of Strategy and Finance evaluates the submitted financial stability plans and reports the results to the Fiscal Strategy Council.

2) The head of each local government or the superintendent of education prepares and promotes policies related to financial soundness for the stability of local finance or local education finance, and if the Minister of the Interior and Safety or the Minister of Education advises local governments on matters regarding the establishment and implementation of financial stability plans or instructs matters necessary for fiscal stability in accordance with the Local Finance Act, require him/her to submit the results to the Fiscal Strategic Council every year.

F. Payment of financial reform awards (Article 11) 

In the event that the head of each central government office increases its revenues or reduces its expenditures through the efficient management of the budget or the improvement of the financial system, allow the Minister of Strategy and Finance to pay financial reform awards within the budget.

G. Periodic long-term financial forecasts (Article 14) 

Require the Minister of Strategy and Finance to perform financial forecasts including revenues and expenditures of central government offices and social insurance revenues and expenditures managed by the head of each central government office for the period from the relevant fiscal year to the 40th fiscal year or more, every five year starting with fiscal year 2021.

H. Financial stability plans for social Insurances (Article 15) 

Mandate the establishment/submission of a financial stability plan for each social insurance in connection with the estimates of the long-term financial forecasts for each social insurance, and require the evaluation results to be reported to the Fiscal Strategic Council.